Aramco Turns to Bond Market Again

Saudi Aramco sold $3 billion of dollar bonds Wednesday in its second such deal this year and amid a September flood of issuance from Saudi Arabia.

The sukuk, or Islamic issue, includes $1.5 billion each of five- and 10-year notes, according to a person familiar with the matter who asked not to be identified as the discussions are private. They respectively priced at 70 basis points and 80 basis points above US Treasury benchmarks, about 35 basis points less than initial discussions.

The deal had a peak order book of more than $20 billion before finishing at more than $16.85 billion, the person added.

Aramco's offering was the third big debt sale out of Saudi Arabia in the past week, following $7.5 billion of deals by the government and the country’s sovereign wealth fund. The Saudi state has raised nearly $20 billion in debt this year, inching closer to a record set in 2017, and making it one of the busiest issuers in emerging markets. 

Aramco, which raised $5 billion in May and $9 billion in total last year, has been boosting borrowings for projects and as it tries to fund a massive dividend that it has struggled to fully cover with free cash flow. 

The company's net debt rose to a three-year high of $30.8 billion in the three months ended June, while profit declined for a 10th straight quarter due to softer oil prices.

The debt drove up the gearing ratio to 6.5 percent in the period from 5.3 percent three months earlier. Still, that level is low compared with Western oil majors, with the ratio for Shell Plc at 19 percent. It gives Aramco room to borrow even more, something the company recent flagged that it intends to do including through new types of instruments like commercial paper.

Aramco is a key source of funds for the Saudi government, which is pumping massive amounts of money into projects as part of Crown Prince Mohammed bin Salman’s push to transform the economy. The company provides billions of dollars in revenue from oil and through a generous dividend. The state has also raised large amounts through share sales, including one last year.

Weaker oil prices have contributed to a 17 percent decline in Aramco's shares this year, pushing it close to the record-low levels of five years ago. That makes it less attractive for the Saudi government to sell more shares in the company to raise money for its funding needs. 

Aramco's bonds, however, have performed better, with yield on the dollar debt maturing in 2035 falling by 50 basis points to 4.92 percent since being sold in May this year. 

The Saudi government, meanwhile, has been bumping up debt sales as it tries to plug a budget deficit driven by a combination of low oil prices and the economic-diversification projects. The state raised $5.5 billion last week, followed by a $2 billion deal by the Public Investment Fund.